Minimum wage rises to &pound;5.05 an hour

The adult national minimum wage is to rise from £4.85 an hour to £5.05 from October and £5.35 in 2006, Prime Minister Tony Blair announced today.

The adult national minimum wage is to rise from £4.85 an hour to £5.05 from October and £5.35 in 2006, Tony Blair announced today.

The Prime Minister said that the increase would affect around 1.4 million workers, with women particularly benefiting.

The rate for 18 to 21-year-olds will rise from £4.10 to £4.25.

Speaking at his monthly press conference in 10 Downing Street, Mr Blair said the minimum wage was "a powerful symbol of how this country is changing for the good".

Mr Blair said that the increase in the minimum wage should be seen "in the context of an economy that is getting stronger and a society that is getting fairer".

He added: "The national minimum wage benefits the whole country.

"The benefit of Britain's strong and stable economy should be shared by every hard-working family in Britain and by middle-income and low-income families alike.

"For too long, poverty pay capped the aspiration and prosperity of far too many hard-working families. Too often, people were told to make a choice between the indignity of unemployment or the humiliation of poverty pay."

The unemployed no longer had the excuse that it was not worth their while working for sweatshop wages, said Mr Blair.

While the minimum wage was not a "king's ransom", it was far better than the wages of £2 an hour or less earned by many workers before Labour came to power, said Mr Blair.

The increases planned for October follow the recommendations made by the Low Pay Commission.

The recommended increase to £5.35 for October 2006 has been "provisionally" accepted by the Government, subject to further advice from the Commission early next year.

The Government says the increase will benefit over a million of the UK's lowest-paid workers. But Low Pay Commission chairman Adair Turner said he was disappointed ministers had rejected the recommendation that 21-year-olds should be paid the adult minimum wage rate.

Ministers have accepted the Commission's recommendation that the minimum wage for 16-17 year olds should remain at £3 an hour in 2005.

The Commission will review the rate and advise the Government further in February 2006.

Mr Turner, the former director general of the employers' organisation the Confederation of British Industry, also called for stiffer penalties for employers who flout the rules by under-paying workers.

He said the National Minimum Wage was set cautiously at £3 an hour when it was introduced on 1 April 1999.

He went on: "The Commission has since sought to produce the maximum benefit for low-paid workers that can be achieved without damaging business and employment prospects.

"Our recommendations on the new rates, which over the next two years will produce a slight increase in the minimum wage relative to average earnings, take us another step closer achieving our goal.

"In reaching our recommendations on the minimum wage rates, we assessed the prospects for the economy over the next two years and took views from interested parties.

"Our analysis suggests that previous upratings have largely been absorbed without adverse effects.

"But we are aware that many businesses have found the last two significant increases in the minimum wage more challenging, and in particular the October 2004 upratings.

"We have therefore recommended only a slight increase above average earnings, and concentrated it in the second year to allow business more time to absorb the impact.

"Although we are disappointed that the Government has decided not to accept our recommendation that 21 year olds should be paid the adult minimum wage rate, we are encouraged that it is indicating a willingness to consider this again in the near future.

"We see this change as an appropriate step in the evolution of the minimum wage.

"As well as looking at new rates, we have made a number of other important recommendations.

"On compliance and enforcement of the minimum wage, we believe that a greater deterrent to non-compliance is needed and we await with interest the Government's view on our recommendation that employers who underpay their workers should face financial penalties and pay their workers interest on any underpayment."

The TUC general secretary Brendan Barber said: "We warmly welcome this increase in the minimum wage, which is more than 10 per cent over two years. The Low Pay Commission has rightly recognised that there is still scope for the minimum wage to rise faster than wages in general.

"The Government were right to dismiss employer calls for a freeze, particularly at a time when profits are rising and boardroom pay shows no sign of moderation.

"The minimum wage remains one of this Government's most popular policies.

"Employers and politicians who said that it would cause job losses have been proved wrong year in, year out.

"We will continue to argue for the minimum wage to increase more than earnings in future years.

"A disappointment today is that the Government has rejected the Commission's renewed recommendation that the adult rate should start at 21, but this is still a good day for Britain's low-paid workers."

The 4.1 per cent increase means someone working 40 hours a week at the minimum wage rate would earn £202 a week or £10,504 a year. The increase was announced days after MPs and ministers gave themselves a 2.8 per cent pay rise from 1 April.

Mr Blair's salary will go up £5,010 to £183,932 while backbench MPs will receive an increase of £1,610, taking their pay to £59,095.

The rise was above the Consumer Price Index measure of inflation, which was 1.6 per cent in January.

The Trade and Industry Secretary Patricia Hewitt said that today's announcement would deliver a guaranteed pay rise to 1.3 million workers this year, rising to 1.4 million next year. Contrary to predictions by the Conservatives that the introduction of a minimum wage would increase unemployment, employment had increased by around two million since its creation, she said.

Unemployment was now at its lowest since June 1975.

Ms Hewitt said she was "reassured" that the Low Pay Commission's report had indicated that the planned increase would not damage the employment prospects of low-paid workers.

"Through the national minimum wage and through these new increases in the minimum wage, we are achieving the two objectives we set ourselves in 1997 - social justice and a stronger economy," said Ms Hewitt.

Around two-thirds of those receiving the minimum wage are women, many of them working in cleaning, catering, retail or hairdressing, she said.

The impact of today's announcement, coupled with tax credits already in place, mean that the Government could now guarantee a minimum income of £252 a week for a family with one child and one earner in a full-time job, said Ms Hewitt.

"For many, of course, it is still a real struggle to make ends meet, but we have created a minimum level below which no family will fall and which is an enormous improvement on where things were eight, nine or 10 years ago," she said.